Information Systems Outsourcing/ASP/ERP

1. Information Systems Outsourcing/ASP/ERP MIS 503 Management Information Systems MBA Program

2. Global Sourcing • The process of deciding where in the world a firm’s activities will be performed and who will perform the activities. • Fundamentally any activities that does not require direct customer contact, extensive local knowledge, or complex interactions can be sourced anywhere

3. Global Resourcing

4. Outshoring and Outsourcing

5. Definition of Outsourcing • IS outsourcing is the commissioning of part or all of the IS activities an organization needs, and/or transferring the associated human and other IS resources, to one or more external IS suppliers • IS Offshoring is the commissioning of part or all of the IS activities an organization needs to one or more other countries • IS Insourcing is the sourcing of a business function within the firm (e.g., Kingland Systems)

6. IS Outsourcing • Four Types of Outsourcing Relationships: • Support • Reliance • Alignment • Alliance

7. Reliance Alliance Support Alignment Outsourcing Grid High Extent of Substitution by Vendors Low Low High Strategic Impact of IS Applications

8. Outsourcing Decision Variables • Relationships • Division Among Suppliers and Contracts • Management Structure • Operational Structure • Internal Organization of Outsourcing Coordination

9. Backward Vertical Disintegration • Car manufacturer purchasing pre-assembled engines instead of purchasing and assembling the component parts themselves • Decreasing the number of phases a firm performs by commissioning another entity within the production chain to perform those functions

10. Diversification - increasing the number of products and services Differentiation - aka ‘disintegration’ - decreasing the number of subsequent phases in the production chain Specialization - reducing the number of products and services Integration - performing a larger number of phases in the production chain Horizontal and Vertical Integration

11. What is ASP? • ASP- Application Service Provider • ASPs buy, install, and manage enterprise applications at remote data centers and host them for customers via a broadband connection, usually over the Internet. • User only purchases “use” of application not an installation license • User pays for “use” depending upon the specific arrangement with the ASP

12. ASPs Lee, Huynh, Kwok, and Pi, 2003

13. App Provider Concerns • “The delivery model is only as strong as the service-level agreement for each component, they all have to work in harmony.” Jeff Anderson, Vice President Strategic Development, Sprint Business • Is there a need for 99.9999% uptime? • The cost of going from 99.5% to 99.9999% can be tremendous!

14. Determinants of Competitive AdvantageMichael Porter • Threat of New Entrants • Intensity of Rivalry Among Direct Rivals • Degree of Concentration • Rate of Industry Growth • Lack of Switching Costs • Pressure of Substitute Products • Bargaining Power of Buyers • Bargaining Power of Suppliers

15. Porter’s Competitive Forces Model: How the Internet Influences Industry Structure

16. Challenges Across Stages of Ecosytem Development

17. What is ERP? • Continuation of MRP development • Connects legacy applications, critical business systems and custom applications within a single set of software modules. • Runs on client-server networks • Generally has multi-site management capabilities • Involves migrating from an internally developed & supported legacy system to commercially packaged systems

18. ERP Systems • Integration of all business areas of company -Manufacturing -Distribution -Human Resources -Finance

19. Functions of ERP • Product Planning • Purchasing • Inventory Management • Order Processing and Order Tracking • Customer Service • Financials • Human Resources • Supply Chain Management

20. Potential Benefits of ERP • Cost Savings • More Efficient Sharing of Information • Increased Customer Responsiveness • Supporting decision making through access to consolidated data/information • Transparency across the entire organization • Integration of all standard business process (human resources, financials, operation)

21. Potential Benefits of ERP:Cost Savings • Reduced Data Entry • Reduction of Process Duplication • Centralized Data Yields • Better Data Integrity • Lower Data Redundancy • System Training Synergy and Simplification

22. Potential Benefits of ERP:Information Sharing • Simultaneous information processing facilitates cycle time reductions • Streamlined Budgeting • Information Inventories Replace Physical Inventories

23. Potential Benefits of ERP:Customer Responsiveness • Integrated data provides more accurate and more timely information for customer queries • Problem resolution is expedited and service levels are increased

24. Potential Disadvantages of ERP • ERPs can be expensive to install and maintain • ERPs are occasionally too rigid and difficult to adapt to an organization’s workflow and business processes • ERPs can be difficult to use • ERPs are integrated systems, so a problem in one module or department will affect all the other users

25. ERP Implementation Requirements • Alignment with firm’s strategic plan • Top management support • Process re-engineering prior to software installation • Adequate employee training is needed • Needs to be developed as an “Enterprise-wide” solution • Abundant testing is needed prior to conversion

26. ERP Venders • Epicor • Exact Software • Lawson Software • Microsoft Business Division • NetSuite Inc. • Oracle Applications • The Sage Group • SAP • SSA Global Technologies • QAD

27. Quotes from the Field What was your firm’s primary objective in implementing an ERP system? • “Our major focus was on our total supply chain costs. We wanted to drive down the cost of our inventories and improve our customer service. It was our belief that an integrated information system could provide the functionality required to accomplish this goal.” Director Global Transportation, Amway Corporation

28. Quotes from the Field • What problems did you experience that you didn’t initially anticipate about the implementation? • “Our first objective was to standardize our processes, leverage that standardization and provide that global set of information across all modules. We wanted a fully integrated manufacturing, financial, as well as sales and marketing system. We phased in a full scope of modules, by location, over a 4 year period. This required complete replacement of legacy systems at each location over 6 to 9 months. We probably underestimated the need and effort required to ensure the cleanliness of data. The information driving your ERP system today demands accurate data from the start. Additionally, I don’t think we understood the scope of training, not only how to push the buttons, but how do I teach someone ERP and how to use it from start to finish. Moving people from a stand-alone task orientation to a fully integrated process orientation. The diversity of firm expertise in sites around the globe added to the complexity of this task.” VP - Information Systems, Molex Corporation

29. Quotes from the Field • What problems did you experience that you didn’t initially anticipate about the implementation? • “Some of the problems were getting around traditional ways of thinking versus complete supply chain . . . what I call ‘dust to dust’. The ERP system is a multifaceted, multifunctional system, so the people working with the system on a daily basis need to be multi-skilled to ensure their decisions and data input reflect a total supply chain perspective, in terms of both costs and functionality.” Director Global Transportation, Amway Corporation

30. Quotes from the Field • Are there benefits the ERP system provided that you didn’t expect? If so, what were they? • “We, like everyone, did not fully anticipate the explosion of e-commerce, but having a single system platform has substantially helped our ability to implement e-commerce applications. You have all your data in one spot, you have one set of interfaces to write, and you aren’t dealing with 20 different legacy systems. We think the ERP system will allow us to expand into the e-commerce area more quickly. Additionally, we have been able to create a quality notification system that gives us ability to see returns and problems from customers anywhere in the world. We have been able to centralize that within our customer service and field sales groups. Our ability to fully integrate that within our workflow has been much easier given our single system ERP application.” VP - Information Systems, Molex Corporation

31. Quotes from the Field • Are there benefits the ERP system provided that you didn’t expect? If so, what were they? • “The system allows us to make decisions quicker and to make better decisions. With customers being more demanding it was imperative that data we provide customers is accurate and our responses are fast. We are getting into a ‘click, click, and ship’ environment. It is no longer JIT, JIT just isn’t good enough. So in a ‘click, click, and ship’ environment if you don’t manage effectively and efficiently your inventory costs, your distribution costs, and your transportation costs will deteriorate your margins. So the ERP system allows us to make better short and long term decisions in supporting our customers.” Director Global Transportation, Amway Corporation

32. Quotes from the Field • What advice would you have for others contemplating an ERP implementation? • “You have to make sure what your business strategy is and then drive to that. I give our executives credit, they had a vision and they stuck with it in spite of some rough rides. ERP systems don’t provide everything, they are not a panacea. If we had to do it over we probably would have implemented some of the system’s data warehousing and reporting functionality earlier in the process. We eventually created a ‘site readiness’ review process that we should have implemented in the beginning. We also could have centralized the management and development of the system faster. Finally, management support and the dedication of the firm to provide adequate resources are both key to making an implementation successful.” VP - Information Systems, Molex Corporation

33. Quotes from the Field • What advice would you have for others contemplating an ERP implementation? • “All systems are great, but you still need people to perform the functions within the systems. The key is the people you have working with these systems. These people have to be multi-skilled and multi-talented in working with the entire supply chain. It’s just that simple.” Director Global Transportation, Amway Corporation

34. Future of ERP Systems • Integration of the entire supply chain • Integration of ERPs across multiple organizations • Wireless access • Real-time updates throughout the system • Outsourcing via ASPs